Making Cuba Safe for Capitalism

This economy just needs a little push.

Photographer: YAMIL LAGE/AFP/Getty Images

A U.S. delegation heads to Havana today to start negotiations on the normalization of ties with Cuba. Don't expect immediate progress. Despite President Barack Obama's bold shift in U.S. policy, the earliest President Raul Castro is likely to embrace democracy or capitalism is in the afterlife.

Still, the give and take of diplomacy offers a chance for U.S. officials to start pushing Cuba for meaningful changes to the thicket of socialist regulations that have held back its economy and its people for the last 50 years. 

Cuba-U.S. Reboot

For a nation of only 11.2 million people, Cuba is an extraordinarily appealing market. Compared with its neighbors, Cuba has high life expectancy and per capita income, and its people are well educated, with nearly 100 percent literacy and a high proportion of the college-age population in college or graduate school. Its plentiful doctors and scientists could make it a hub for medical tourism and pharmaceutical development. If the U.S. embargo were lifted, U.S. sales to Cuba could rise more than tenfold, to as much as $6 billion a year.

Moreover, it's possible that Cuba's offshore waters hold up to 4.6 billion barrels of oil and nearly 10 trillion feet of natural gas. And as the ex-leader in global sugar exports, Cuba could also be an important provider of biofuels.

Right now, though, the Castros still have the economy under lock and key. Halfhearted economic reforms have slowed Cuba's growth. Farmers have been granted the right to cultivate land for 10 years, for instance, but the government can then reclaim it. Foreign investors can have operational control of 50-50 joint ventures, but they must hire and pay workers through the state. Investments in tourism remain tangled in red tape, too. Canadian investors aiming to build a $4 million golf course (after the Cuban government lifted its ban on the bourgeois sport) needed eight years to get their project off the drawing board.

The Obama administration can move to widen these and other fissures in Cuba's cracking socialist edifice. For starters, the U.S. should go ahead and take Cuba off its list of state sponsors of terrorism, not merely review its status. It hasn't belonged there for a long time, and the accompanying sanctions needlessly hinder foreign trade and investment.

The U.S. also has a strong interest in quickly settling the trademark disputes and 6,000 expropriation cases dating back to the 1960s, because these need to be resolved before the embargo can be lifted. People deserve to be compensated, of course, but companies should recognize that their interests are better served by getting access to Cuba's market.

The Obama administration can also start talks with Cuba on a trade and investment framework agreement that would help secure protections for U.S. investors, settle regulatory issues, and promote intellectual property rights and technology standards.

The Castros' most die-hard opponents in Congress will resist such initiatives, let alone an end to the embargo. And it's true that Cuban socialism and its repressive apparatus remain largely intact. But isn't it time for those who believe in the transformative power of capitalism to demonstrate the courage of their convictions?

To contact the senior editor responsible for Bloomberg View’s editorials: David Shipley at davidshipley@bloomberg.net.